CHITALY HOLDINGS LIMITED

Transcription

1 CHITALY HOLDINGS LIMITED (Incorporated in the Cayman Islands with limited liability) (Stock Code: 1198) 2005 INTERIM RESULTS ANNOUNCEMENT INTERIM RESULTS The Board of Directors of Chitaly Holdings Limited (the Company ) is pleased to announce the unaudited interim result of the Company and its subsidiaries (collectively the Group ) for the six months ended 30 June 2005 together with the unaudited comparative figures for the same period in 2004 (the Interim Period ). These interim financial statements as set out in the interim results were reviewed by the Audit Committee of the Company. Notes Turnover (3) 232, ,132 Cost of sales (151,959) (122,244) Gross profit 80,065 59,888 Other revenue (4) 17,734 10,541 Selling and distribution costs (12,897) (8,323) Administrative expenses (17,816) (10,782) Share option reserve (6,587) Other operating expenses (34) (26) Profit from operating activities (5) 60,465 51,298 Finance costs (186) Share of losses of associate (217) Profit before tax 60,062 51,298 Tax (6) (10,729) (6,763) Net profit from ordinary activities attributable to shareholders 49,333 44,535 Dividends Final 34,113 27,908 Proposed Interim 25,276 29,240 59,389 57,148 Earnings per share basic (7) 20.2 cents 18.9 cents diluted (7) 19.4 cents 18.3 cents 1

2 Notes: 1. ACCOUNTING POLICIES The condensed consolidated interim financial statements are prepared in accordance with Hong Kong Accounting Standard ( HKAS ) 34 Interim Financial Reporting and with the applicable disclosure requirements of Appendix 16 to Rules Governing the Listing of Securities on the Stock Exchange (the Listing Rules ). The accounting policies and basis of preparation adopted in the preparation of the interim financial statements are the same as those used in the annual financial statements for the year ended 31 December 2004, except in relation to a number of new and revised Hong Kong Financial Reporting Standards ( HKFRSs, which also include HKASs and Interpretations) that affect the Group and are adopted for the first time for the current period s financial statements. 2. SUMMARY OF THE IMPACT OF CHANGES IN ACCOUNTING POLICIES Following the adoption of the HKFRSs, the opening balances of the following accounts were adjusted retrospectively. The details of the prior period adjustments and opening adjustments are summarized as follows: (a) Effect on opening balance of total equity at 1 January 2005 Effect of new policies Capital Retained (Increase/(decrease)) reserve earnings Total Prior period adjustments: HKFRS 2 Employee share option scheme 1,862 (1,862) Net increase/ (decrease) in total equity before opening adjustments 1,862 (1,862) (b) There is no effect on opening balance of total equity at 1 January 2004 The following tables summarise the impact on profit after tax, income or expenses recognized directly in equity and capital transactions with equity holders for the six-month periods ended 30 June 2005 and 2004 upon the adoption of the new HKFRSs. (c) Effect on profit after tax for the six months ended 30 June 2005 and 2004 Effect of new policies holders of holders of (Increase/(decrease)) the parent the parent HKFRS 2 Employee share option scheme 6,587 Total effect for the period 6,587 Effect on earnings per share: Basic HK2.7 cents Diluted HK2.6 cents (d) Effect on income or expenses recognized directly in equity and capital transactions with equity holders for the six months ended 30 June 2005 and 2004 Effect of new policies holders of holders of (Increase/(decrease)) the parent the parentl HKFRS 2 Employee share option scheme 6,587 2

3 Total effect for the period 6, SEGMENT INFORMATON The Group s operating business are structured and managed separately according to the nature of their operations and the products they provide. Each of the Group s business segments represents a strategic business unit that offers products which are subject to risks and returns that are different from those of the other business segments. The following table presents revenue and results of the Group s primary segments. Manufacturing Retailing Manufacturing Retailing of furniture of furniture Total of furniture of furniture Total Revenue: External sales 219,758 12, , , ,132 Segment results 59, ,265 40,758 40,758 Unallocated income ,540 Finance costs (186) Share of losses of associates (210) Tax (10,729) (6,763) Profit for the period 49,333 44,535 An analysis of the Group s turnover by location of customers is as follows: Sales to the People s Republic of China ( PRC ) 228, ,603 Sales to elsewhere 3,120 1, , ,132 An analysis of the Group s prof it from operating activities by location of customers is as follows: Sales to the PRC 59,658 50,864 Sale to elsewhere ,465 51, OTHER INCOME AND GAINS Bank interest income Service fee 11,891 10,267 Gain on revaluation of property 5,650 Others Other revenue 17,734 10, PROFIT FROM OPERATING ACTIVITIES IS ARRIVED AT AFTER CHARGING Depreciation of owned fixed assets 7,834 6,313 Amortisation of licence rights of trademarks 141 Share of losses of an associate 217 3

4 6. TAX Hong Kong profits tax has not been provided during the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof. Group Macao 7,942 4,900 PRC 2,787 1,863 Tax charge for the period 10,729 6,763 Macao income tax has been calculated at the statutory tax rate of 15.75% on the estimated assessable profits for the period of Hong Kong Wong Chiu Furniture Holding Limited ( Wong Chiu ) which is engaged in the trading of furniture. Pursuant to the Macao SAR s Offshore Laws, Sino Full Macao Commercial Offshore Limited ( Sino Full ), a Macao Offshore Company, is exempted from all the taxes, including income tax, industrial tax and stamp duties. According to the Income Tax Law of the PRC on Enterprises with Foreign Investment and Foreign Enterprise, Wanlibao, Guangzhou Fufa Furniture Limited ( Fufa ) and Simply (Dongguan) Furniture Limited ( Simply ), wholly owned subsidiaries of the Company established in Guangzhou and Dongguan, the PRC, are subject to a preferential corporate income tax rate of 24%, and are exempt from PRC corporate income tax for the first two profitable years of its operations, and thereafter, are eligible for a 50% relief from PRC corporate income tax for the following three years. King Apex International Limited ( King Apex ), Lead Concept Development Limited ( Lead Concept ) and Smart Excel International Limited ( Smart Excel ) are engaged in the provision of quality control, design and customer services respectively. Provision for tax on the estimated assessable profits of each of these subsidiaries arising from their operations in the PRC has been calculated at the rate of PRC corporate income tax during the year, which is currently 33%. 7. EARNING PER SHARE The calculation of basic earnings per share is based on the unaudited net prof it from ordinary activities attributable to shareholders for the period of HK$49,333,000 (2004: HK$44,535,000) and the weighted average of 244,492,667 (2004: 235,632,000) ordinary shares. The calculation of diluted earnings per share is based on the unaudited net profit from ordinary activities attributable to shareholders for the period of HK$49,333,000 (2004: HK$44,535,000). The weighted average number of ordinary shares used in the calculation is the 244,492,667 (2004: 235,632,000) ordinary shares, as used in the basic earnings per share calculation; and the weighted average of 9,892,788 (2004:8,078,333) ordinary shares assumed to have been issued at no consideration on the deemed exercise of all share options with dilutive effect during the period. MANAGEMENT DISSCUSION AND ANALYSIS Dividend The Board of Directors recommends payment of an interim dividend of HK9.5 cents per share for the six months ended 30 June BUSINESS REVIEW The Group recorded another satisfactory half year with turnover rising 27% to HK$232 million for the six months ended 30 June Gross profit margin increased from 32.9% of the same period last year to 34.5%. During the review period, we invested heavily in marketing and promotional activities and expanding our sales and distribution network to further enhance brand awareness among consumers and strengthen our foothold in the industry. We are pleased to see the positive feedback manifested in tremendous growth in sales that our profit from operating activities increased by 17.9% to HK$60 million for the six months ended 30 June After taking share options and revaluation of assets into account, profit from operating activities stood at HK$61 million. The Chinese Government stepped up its macroeconomic measures to control over-investment during the first half of 2005, which effects were felt by the furniture industry, especially between April and June However, the Group believes these macroeconomic measures are beneficial to the furniture industry in the long run, thus is confident of the growth potential of the market. Being owner of the renowned brand names, Royal, Knight, and Simplified, the Group enjoys a significant share in the PRC s furniture market. During the review period, it marketed six series of home furniture, namely Light Walnut, Ebony, Black Walnut, Glossy, Light Oak and Simplified. We grow our customer base constantly by expanding our product lines. Our furniture are traditionally designed for more mature consumers with large homes. Starting this year, new lines of products were developed and new series launched in the first half of this year included for children and City Living for young starter homes. Moreover, recently at the August furniture exhibition, two more series - New Focus and i home which target also to young homeowners were previewed. Featuring well-known celebrity Ms. Rosmund Kwan, the Group has been promoting extensively its brands and products via the print media, and on billboards as well as television. We had advertised extensively on television during the review period in order to raise brand awareness. On top of promotion in the domestic market, we also introduced our brands and products to overseas markets, such as Spain and the US, through active participation in international furniture shows. Our products were well received in those markets. As at 30 June 2005, the Group s quality products were distributed nationwide through 920 specialty outlets in 29 provinces in China. As a step towards integrating its brands and corporate image, we retrieved franchise rights from franchisees in cities including Shanghai and Shenzhen. The purpose of our involvement in retailing is not to compete with our franchisees, but an effort to set a 4

5 model retail operation to inspire our franchisees. In its first six months of operation, our retail outlet contributed approximately HK$370,000 to our net profit. We expect this figure to grow as we approach our peak season in the second half of the year. As an effort to ensure consistency of our brand images, we also offer sourcing services to franchisees for non-wooden furniture and accessories, such as sofa, mattress, table, cushion, massage chairs, lamps and other decorations. These services are welcomed by franchisees, as evidenced by the additional income from the franchised operation, amounting to approximately HK$12 million, about 16% more than that of the same period last year. The sourcing service also helped to fortify the business relationship between the Group and its distributors. The PRC Government reinforced its macroeconomic control measures, which had adversely affected the furniture industry in the past months. However, as the measures have been effective in driving speculators out of the property market, they should facilitate healthy economic growth in the long run, which will in turn create a more promising future for the furniture market. Much of our sales volume comes from newly weds establishing new homes. However, since this lunar year is not a good year for marriage, many may have postponed their weddings and delayed their plan to buy new homes. In sprit of the above factors, the Group manages to achieve satisfactory results in 2005, while the above factors are expected to continue to have negative impact on the industry, the group remain cautiously optimistic of our business in the second half of the year. The Group has been expanding rapidly since listing targeting to establish a distribution network with 1,000 specialty outlets by end of With over 920 outlets in operation in the first half of the year, we are optimistic about achieving our expansion goal. The Group is quickly approaching maximum production capacity. With four new series of products introduced this year, effective management of capacity utilization will be critical to our growth in the short term. The Group has secured a piece of land early this year for building a new factory. We expect the first phase of the factory to be completed by end October this year to ease the anticipated capacity constraints. Construction of the entire plant will be completed in three to five years. By then, the Group s total production capacity will be boosted by 150%. We operate in a highly competitive environment. The strategies that worked yesterday may not be today s winning formula. Continual product innovation and new strategies are the only assurance to our continuous success. To maintain good profit margins this year, we have introduced four new product series this year. In July, we successfully raised HK$100 million through a new issuance of shares to global institutional investors. We wish to thank specially our existing shareholders who have been supporting us over the years, and who subscribed to the placement. The purpose of the placement was to raise fund for acquiring a key competitor Hing Lee Furniture. Unfortunately, as agreement could not be reached between the companies on related final terms, the acquisition was unsuccessful. We will continue to look for opportunities, which will allow us to further consolidate our business in line with our development strategies and promise accretive earnings growth. We are satisfied with our growth so far this year and are cautiously optimistic about our performance in the near future. The industry environment had been less favorable this first half of the year in comparison with the past years. We believe our industry will be consolidating in the near term. This consolidation process may present opportunities for the Group to grow. On balance, the July 2005 Renminbi appreciation (2%) should be beneficial to the Group. We expect any further Renminbi appreciation to be positive. Riding on our effective marketing strategies, outstanding design capabilities, profitable business model, strong industry reputation and extensive presence in the PRC, we are confident that we will be able to grasp every opportunity ahead and bring the most fruitful returns to our shareholders. INTERIM DIVIDEND The directors have determined that an interim dividend of HK9.5 cents per share amounting to HK$25.3 million should be paid to the shareholders of the Company whose names appear in the Register of Members on 20 September 2005 and payable on 27 September The Register of Members of the Company will be closed from 15 September 2005 to 20 September 2005, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the interim dividend, all transfers accompanied by the relevant share certificates must be lodged with Tengis Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not later than 4:30 p.m. on 14 September LIQUIDITY AND FINANCIAL RESOURCES As at 30 June 2005, the Group had an unaudited consolidated net asset value of approximately HK$266 million. (31 December 2004: HK$233 million). The Group maintained a strong financial position with cash and bank balances of HK$72 million as at 30 June As at 30 June 2005, the Group had no contingent liabilities and bank borrowing of HK$12.6 million. As at the same date, the gearing ratio, calculated on the basis of total liabilities over total shareholders fund was Over 90% of the Group s cash is either denominated in Hong Kong Dollars or Renminbi. The exposure to exchange fluctuation is minimal. The liquidity of the Group as evidenced by the current ratio (current assets/current liabilities) was 1.47 times, which improved from the 1.42 times applicable at the end of As at 30 June 2005, the net current assets was approximately HK$74 million (31 December 2004: HK$75 million). 5

6 Employment and remuneration policy The total number of employees of the Group as at 30 June 2005 was 2,000 (2004: 1,500). The Group s remuneration policies are in line with local market practices where the Group operates and are normally reviewed on an annual basis. In addition to salary payments, there are other staff benefits including provident fund, medical insurance and performance related bonus. Share options may also be granted to eligible employees and persons of the Group. At 30 June 2005, there were outstanding share options of 9.6 million. Purchase, Sale or Redemption of Listed Securities During the six months ended 30 June 2005, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company s listed securities. CODE ON CORPORATE GOVERNANCE PRACTICES The Company has complied throughout the period of six- month ended 30 June 2005 and adopted all the code provisions set out in Appendix 14 Code on Corporate Governance Practices of the Listing Rules, except for the following deviations: Code Provision A.2.1 This Code stipulates that the roles of chairman and chief executive officer should be separate and should not be performed by the same individual. On 27 August 2005, Mr. Tse Kam Pang, the Chairman, Chief Executive Officer and Executive Director of the Company resigned as Chief Executive Officer of the Company in order to segregate the duties of the Chairman of the Board from those of the Chief Executive officer. After the change, Mr. Tse will remain as Chairman and Executive Director of the Company. Mr. Ma Gary Ming Fai has been appointed as Chief Executive Officer of the Company at the same date. Code Provision A.4.1 Code A.4.1 stipulates that non-executive directors should be appointed for a specific term and subject to re-election. The term of office for non-executive directors are the same as for all directors (i.e. no specific term and subject to retirement from office by rotation and be eligible for re-election in accordance with the provisions of the Company s Memorandum and Articles of Association). At every Annual General Meeting, one-third of the directors for the time being or, if their number is not a multiple of three, the number nearest to but not less than one-third) shall retire from office by rotation. Remuneration Committee The Company has set up a Remuneration Committee in accordance with the relevant requirements of the Code on 27 August The Committee is chaired by Mr. Chang Chu Fai Johnson Francis, an independent non-executive director and comprise two other members, namely Dr. Donald H. Straszheim and Mr. Yau Chung Hong, being independent non-executive directors. Model Code for Securities Transaction by Directors The Company has adopted for compliance by the directors the code of conduct for dealings in securities of the Company as set out in Appendix 10 Model Code for Securities Transactions by Directors of Listed Issuers ( Model Code ), of the Listing Rules on 27 August Having made specific enquiry of all directors of the Company, they have complied with the required standards set out in the Model Code for the six-month period ended 30 June By Order of the Board Chitaly Holdings Limited of Tse Kam Pang Chairman Hong Kong, 27 August 2005 As at the date of this announcement, the directors of the Company are as follows: Executive Directors: Mr. Tse Kam Pang, Mr. Lam Toi and Mr. Ma Gary Ming Fai Independent Non-Executive Directors: Dr. Donald H. Straszheim, Mr Chang Chu Fai Johnson Francis and Mr. Yau Chung Hong Please also refer to the published version of this announcement in The Standard. 6